You are given the following cash flow statements for Ink Reasing plc.

a Write a report explaining what the above cash flow statements reveal.
b The company’s bankers stated that, in view of the £1m increase in the company’s overdraft, and the additional borrowings of £2.2m, the increase in the amount of dividends paid is not justified. Do you agree? Explain.

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Cash flow statement of Ink Reising plc for the year ended 31 December Year 1 Year 2 000 000 Cash flows from operating activities Profit before financing costs Depreciation 1,800 2,500 1,500 1,900 3,300 4,400 Increase in trade receivables (800) (1,200) Increase in inventories Increase in trade payables (600) (1,300) 100 200 Cash from operations Interest paid Income taxes paid 2,000 2,100 (600) (600) (400) (600) Net cash from operating activities 1,000 900 Cash flows from investing activities Proceeds from disposal of equipment 100 Purchase of property and equipment (2,100) (4,000) Net cash from investing activities (2,100) (3.900) Cash flows from financing activities Proceeds of issue of shares 2,000 (Repayment of) increase in borrowings (600) 2,200 Dividends paid (400) (500) Net cash (used in) raised from financing activities 1,000 1,700 Net (decrease)/increase in cash (100) (1,300) Opening cash 400 300 Closing cash 300 (1,000)